Partnership remuneration

first please mention the following:-

Rate of interest on capital (allowed by you, during the year)

Capital stading to the balance of partners.

interest rate is 12%

opening is

partner 1. Rs. 331352

parner 2 RS. 331592

profit                   248020

-int on cap         (79529)

balance              168491

remunration     151642

150000 or 90% of 168491, whichever is higher

First find out Net Profit beforeDepreciation as per IT Act, Remuneration and interest on Capital to Partners.

Add back Depreciation debited to the Profit & Loss Account and Reduce it by the amount allowed under the IT Act, 1961.

From the resulting figure, deduct Interest on Capital @ 12% (You can calculate the Interest @ 12% p.a. on the Partners Capital on Daily Basis).

From the Figure computed above, calculate the Remuneration as laid down u/s 40(b) of the IT Act, 1961.

It must be noted that Remuneration will be least of the following:

(a) As laid down in the IT Act, 1961;

(b) As laid down in the Partnership Deed;

(c) As claimed by the Partners.

Whatever sums the partner draws from the Business would be given debit directly to their capital accounts. The Interest and Remuneration which are computed in accordance with the above would be credited to the Partners Capital Account in their Profit Sharing Ratio.

Here, the Partners Capital Accounts would equally mean their Current Account also.

Further, in case of Debit balance in the Partners Capital Account, Interest would be payable by them to the firm.